The program requires recipients to pay back the benefits they have already received, enabling them to qualify for higher payments at an older age. The Social Security Administration said it will restrict the program to prevent wealthy retirees from using the early payments as an interest-free loan.
Retirees who apply for early benefits can still change their minds in the first 12 months. Previously, they could receive benefits for years before withdrawing.
The Social Security Administration said the new regulation is designed to stop investment scams targeting retirees. The rule is effective immediately, though the agency said it would accept comments for 60 days.
"The tactic involves filing a claim, investing the Social Security income into something relatively safe, and then after a few years, suspending benefits and repaying," said Mary Johnson, a policy analyst for the Senior Citizens League. "The Social Security Administration only required repayment of the benefits, not any interest or any fines. Thus seniors using this tactic pocketed all interest or earnings. Later on perhaps at age 70 they could then file a new claim and receive a boosted benefit."
The risk, Johnson said, is when investments go bad and seniors can't afford to repay the benefits.
"The last thing most seniors need today is to be betting their Social Security income on iffy investments," Johnson said.
The new regulation is expected to have limited effect because few retirees have enough cash on hand to repay their benefits years after retiring.
In 2009, only 1,000 people who had reached full retirement age repaid earlier benefits in order to qualify for higher payments, said Social Security spokesman Mark Lassiter. Through the first six months of 2010, fewer than 400 had done so.
Retirees can qualify for early Social Security benefits at age 62. Full benefits are available for retirees who wait until they turn 66 to apply, a threshold that is gradually rising to 67 for people born in 1960 or later. People who retire early get smaller benefits than if they wait.